H1 20/21

Nov 3, 2020

Good day, ladies and gentlemen, and welcome to the 2020 21 Halfley Results Conference Call of East Summit. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would like to introduce your host for today's conference. Mr. Thomas Cook, Head of Investor Relations. Sir, the floor is yours. Thank you, Olivia. You very much. Good day, ladies and gentlemen, and thank you for joining us for our 2021 half year earnings call. Joining me today is Simon Mika. Our press release, report and presentation, discussing our results and business performance, is also available in the Media Investors section of our website. With that, I will turn the call to Simon Simon, please. Thank you, Thomas. Ladies and gentlemen, a very warm welcome from Gupta, Switzerland today. Cross shows and proves how robust our business model is and how privileged we are. Our business model, has proven itself. Our products are vital for people with chronic disease, infusion sets for pump users are required every 3 days and devices as well. And our processes, as you know, who are highly automated and vertically integrated. So our manufacturing has never been interrupted. Our supply chain towards customers, towards our clients, has been insured in all times. So our core strategy and our focus are really right. The market is right, and therefore, we continue to pursue our growth path. Yes, we have grown a bit less than expected 12 months ago, but we have grown at 4.6%. And currency adjusted at 6.8 percent even. This has also, shown, and it is also being reflected that they have created over 100 new jobs during this crisis. We have added people, especially in the area of software engineering, production and less so in administration as you might see from the figures. Reflects hope to align on the following 4 strategic initiatives, as we have shown before, expansion innovation, operational excellence and sustainability, in the area of expansion, we extend the reach to farmersize the companies on a global scale, and we are working intensively on the U. S. Pump access. And the error of innovation, because of digitization exercise for most of our products, We save costs on the manufacturing. Our wind transformation program in all manufacturing force are, very far, and lead to our cost leadership. And as you know, we have, committed to become CO2, 0 carbon net 0 by 2030, a commitment which has been very well received by our product clients that are in a similar position and under pressure from society and from politics. So what has we achieved in the last 6 months in those 4 strategic areas? As you may have seen this morning, our sales growth of over 20 of almost a new percent year on year in injection systems is just phenomenal. You're extremely motivated that that we are able to actually fulfill our comments in less time. Then we have told you 2 to a half years ago. So we basically have doubled injection systems in 2 years to 2 a half years, and they're going to double it again in the coming 3 years. This is a clear proof that our platform program works. On Instagram, we are very close to finalize a very important partnership in the US for the distribution of heads of pumps. We hope to get it communicated in the coming weeks. The, the, the day to day, 3rd 4th November are quite full with topics in the U. S. So we have decided to move it out a bit. On the innovation level, we are on track with our new program, I see the integration of test on into our myeloid acid or myeloid implant system, we have also been able to secure 2 intradose. Cases, Ethanol is the large volume injector in the area of Ipsenet delivery system, a very interesting new field devices that will make us very happy in 5 years from now. A new class of devices, we call them large volume injectors, LDI, very lucrative, mainly in the area of oncology. They've been doubling the capacity on Hipsomate by installing two lines inch marine in Germany on your site. And we're delivering at the moment our large infusion test line in marine, so the 10,000,000 infusion test capacity line we are no longer dependent from the Mexico factory. As you may have seen, we have introduced Ipsenate 0 our 0 option as we call it. It's an it's an option that our vana client can choose, and it says and we ensure that, products are carbonate 0, that they are, getting from us. This growth is also shown reflected, of course, in our investments. But interestingly, as you see, we spend less money in concrete feel, but more so with software and intangible assets, and that's very important. So we basically moved our investments from infrastructure into R and D and software into future business. And in order to achieve this, We have been able to increase our short term credit line with our bank slightly from $210,000,000 to $265,000,000 and also my family has decided to extend the bid and the credit line by 45 additional 1,000,000 to 55. So now we are in a comfortable situation that we can finance all these investments in R&D and in production capacity. As you know, we have to pre finance, the internet and built in and all these lines that this requires capital. This is now possible without further, discussions with banks. We've also decided to release internet rates from large programs and we have decided to sell, it supports the program, It's our touch comp program where we have, very much various investments so far up to 9,000,000. You set it for 30,000,000 to TechMed, Techmet, is a company which is 100% controlled by my father. So basically, sales and development program into our family it's a it's a small it's it's a small game here on its massage. We have been discussing that with our early lord and, if they have said it's okay. How we get to the calculation. And we basically do it to relieve Xmex in order to focus. It's a 75 additional million program. Which is required for this, for this product until we can deliver to the market. Importantly, is to know that we have, decided on an earn out cost and also the possibility to buy back, once it's finalized and developed and ready to market in 24. So it's actually also the same. We simply finance it no longer out of our company, but our family, and we take the responsibility to support here in these times because we don't want to stop it. We are convinced it is a very important product for the market. It's a cost It's a very nice alternative to the army crop. It's a stable point of comfort, as you know, which has a cost benefit We don't want to stop it, so it's a way to finance it externally. That's, what we will do, and we'll move it over in January. So COVID-nineteen, what are the effects on our business? Let's start with Internet delivery systems. Basically, 0, we have no real effect. Operating business running. They're delivering product. Some companies are even ordering more in order to have stocks, you can imagine. Some few products have a small delay in introducing them because some hospitals don't allow Salesforce from our pharma partners in their offices. But overall, we are very happy that the airline can deliver and then we can continue the business on a very, very stable manner. Just as a reminder, when those of you that are new with us, our platform device strategy is really the core piece for the success in its method of its systems. Such accounts in high growth in this area is only possible because we have done our upfront investments. We started that already 8, 9 years ago. So we have talked about investing in platforms, products such as all manufacturers and disposable tenants, we have installed manufacturing and we still go on to, install manufacturing capacity. It's basically something we have to do upfront in order to sell products and just customize them, support the studies, and bring them to the market. And this platform device strategy is the reason while we have this technology leadership and the cost leadership at the same time. They're still focused on not changing too much on the product that we can we profit from scale effect, scaling effects, use of course, to lower cost. We can have several clients on one line, which is very efficient, working with our schools. On diabetes care side, we are of course lucky in our situation that we can continue to deliver infusion sets and trips, patient.com. They use the product if you don't go off the therapy just because of corona, you continue to use your disposables, but and this is very similar to what the comments and others go through, we cannot really put many more patients on the pump. We have calculated an 800 to 1000 patients per average, and we are rather at the 300 per month average, which is of course too low, but those patients are simply not able to talk to us because it's a net and also the other pump companies, you are not allowed to to join the hospitals, the offices, and actually talk to the people. But it is important to know, we use the time in order to catch up to catch up on technology side by reducing the pilot flow, those elements by, doing integration techs come, and it's very important piece for our customers, and by basically catching up to tandem and the electronic, during the time. So kind of a good position that we can use this this, this situation that the virus gave us, you know, to, to do our homework. Just to give you a bit more details on what is happening here in Europe. Basically, Germany and Switzerland are incredibly comfortable situation, German Switzerland works with, specialized practices, so the diabetic practices developed shift You can take EBITDA with mask and it works, but most hospitals in the UK and France, basically are really shut down It's good because I get appointment with, and our clients that are interested in the pump and also 10 vision in order for instance, and Eastern Europe are part of the cost. And there is a pent up demand. And, we see this wave. We see, we see the prescriptions wasting. We have trainings lined up. I don't need to know when this will be. Will it be in spring? Will it be in early summer? We don't really know. This is, the main reason, basically, why, and, expected for us to see the exact outlook. We clearly see a slight decrease on top line sales, and we definitely see further growth in operating profit. So the second half is still growing And then, all in all, we will certainly have a better result than in 1920, but it's difficult for us to have the way we are ending simply because of but don't really see yet how many patients in Q4 have been able to put on a control and operations, especially, you have seen that you're down to 5.2% administration cost, and my clear goal is to be below 5%. As you may know, this is a clear focus of my team here, taking our costs, unnecessary fact. It's a good moment to dig in again as a stop initiative, stop products, stop elements, which are not really, really core. And this is something I'm, very, really, very strong support from our from our employees, especially when we did hire people, it shows that, we have a clear focus on on on on what we do. Import for you to know, there's still a crystal clear convinced that medium term EBIT target of $100,000,000 is achievable. This is sweet. We're happy to remove it out a bit eventually now because of, the delay of putting pay dot com, but it is clearly see it in our Metro planning. I mean, doubling delivery systems by itself will bring us more than 100,000,000 in this segment only. So all we have to do is to get to a black 0 income business in order to achieve these results. When you go a bit more to the details, on on on top line revenue, we see this 4.6% growth in sales, And it's clear now that, YDS is the strongest revenue driver. The delivery system says that you may know, is part of injection systems, that's our OEM business, our own developed tens and the contract manufacturing business. So this combined segment is growing with 18.9% last half year, while the ID to Care overall has declined 8.9%. And this is mainly due to the pump. Let's first go into a bit more detail on delivery system. So the last 2 years have grown at 59%, 22% growth in injection systems is very a high margin business where we are facing the goal of it's just a big baby and a big antigen out there and there's nobody left. So this is a situation we can really profit from. We can keep our eye not. We we charge a most of the case in Swiss francs. We don't have the currency effects in this business, a very comfortable situation for our voltage sectors for prefilled syringes, and that will dispose the pens for cartridges. All the copper manufacturing is growing, and that's very motivating as you first, we have been able to extend the partnership with Sanofi. So we are able to double the capacity and are in this growth mode at the moment, and we make money manufacturing that is important. We add a lot of the, effect here to our fixed costs, which support, of course, our overall infrastructure and depreciations. On the business care side, this total of 8.9% is combined of comp. In comp, we have a decreased decline of 13.7% that's no loss compared to some of our competitors, but it is, of course, due to less new patients on the pump. And that's, as a little issue, we know but it's it's it's not really locked, basically, as delayed. On 20 days, we had a bit lower sales because of less news in America at the moment. We are fairly working on filling that volume in 2021 again. And then the export test strips is maybe, maybe, occurrence effect. And, of course, test strips are a bit bit lower, but on a very high low volume. Because of CGM, new technology. I'd like to end the bigger discussion here with and, bottom line, it's it's solid, basically almost on the on the area where we have seen the year before. We have added 8,000,000 in growth and efficiency gains, through our in manufacturing and in transformation program. But we are slightly less compared to last year because of the 1 off license agreements that we have been able to book into, our books, our P and L last year, So net, it ends up at top 3. We have a 4,000,000 effect on the depreciation area, especially for the capacity. That now is ready and there and starts and costing and putting a cost in our P and Ls mainly due to now the fully operating and life machinery insight. With that, I would like to, dig into our own business areas, and I would like to start with It Smith Delivery Systems. In It Smith Delivery Systems, you may have read 6 go, we have launched a 0 option that Ipsomate 0. Initially, the first 0 carbon emission auto injector that's being extremely well received, I can say, by, a global, a bit for our biotech, And the industry clearly realized that it's submitted here in the innovation lead that we are showing the industry where we have to go next It's not only digital. It's also green, and it's in a very important element because, most of our pharma customers, they get the pressures from their from from their investors, from their government, from their clients, from their end users, and they're putting here a very strong signal and support in our industry and make it very difficult for our 2 remaining competitors to catch up with us. And so how do we do that, basically, twofold by substituting and by offsetting substitution means that you're changing material, basically taking the oil based, plastic and an extension, through a biopolymers. This is polymers that comes plant, sugarcane, and stuff like that, and also recycled plastics. So as we exchange the parts, and lower the carbon footprint just like changing the material. We're also working on many initiatives on circularity, I. E. Taking trades back, pallets back, taking packaging back, not throwing it all away after shipping. But it's clear, this substitution can only do roughly 50% of car emission reduction, the rest are going to offset and you're doing that by buying certificates from the market, but also by creating own certificates. As you may know, we have and, started 3 years ago in the Matamoros and near the National Park in Kenya, a very large reforestation program And in 22, we are going to be able to deliver our 1st own certificates, which will support us on re bringing us down to NET Carmen 0 and that you have, as I've said initially, as a group, you want to be net carbon 0 by 2030 late. This is in order to support the Kyoto and Paris initiatives. But it's not only it's not only green. It's only it's also volume And this is an actual picture actually here. Last week, I would chose, the 2 new lines for open checkers in our new new site in in in hall b, on the left side. This is, 20,000,000 capacity for open chapter 2 lines. Including over 20 and packing all the machines. It's been installed now. And after Christmas, you're going to see the first for a test run so we can start, manufacturing out of Germany in Q1, Q1 calendar year 'twenty one. We look at our order pipeline. It is a very strong. We have added in the last 6 months as many new projects as in the entire previous dividend year. Is extremely remarkable. At the moment, we have roughly 50 older injector variants and 60 disposable euro plan value under customization. Some of them now move into the studies. Some are already in the registration FDA phase. So this big big wave is coming. It's coming closer to to market in the next and 3 to 4 years, we will see dozens of launches, every year of new products, new, new, new drop it's not commonly diabetes. It's, many interesting molecules that we have entered the market and support and release patients with chronic disease. With that, I would like to move over to diabetes care. Diabetes care, of course, most of you are interested. So what is EPSEMET doing in America. And we are in discussions and a very extended discussion with a distribution partner that they're going to announce Hopefully, in the coming week, not months. We have, a clear understanding that Xfinity is not going to have its own brand in America, its own sales organization, its own processes. We're going to have a small organization that will support in in, in second level support, in regulatory support, and logistics, and internet will be the register. So we are going to register the product in a 2 in a in a 2 step process, towards 8 with the FDA. So step 1, in a Jewish 21, they're going to, enter the dossier for, the ITSA pump. And if the pump is going to become the pancake device for the 8th, interoperable, approval, which, we're going to handing in, in December, Q4, Q1 latest 22. So we're going to have a market loss by mid-twenty 2. Never come together with our partner. We are extremely motivated to do that. There's now a very clear view. It's it's made a release on the bottom line. We don't have to be our profit investments, and it basically is a OEM business relationship in the my life that I did share space, similar to what we do today in Japan has often checked the role, you know, do the same thing in the pump. I think it It's a very wise position to collaborate with a strong partner, a strong distributor, diabetes insider. Outside of the U. S, you're basically fulfilling what we have to do, our duties, our loop program, Our program, just as a reminder, consists of 3 elements. It's the Managed Assist, it's a dose as a loop. The Managed Assist is integrate intake from G6 into our managed app. The 17 language version, Android, iOS, etcetera, so that it is well underway, and we're going to launch it beginning of the year. Milestone is the old doctor. It is the long awaited killer app. It is the feature that every diabetic wants. It's basically steering your pump with your mobile phone. They're giving you both in the restaurant and home without showing everybody at the comp. So that's a, that's a, that's a core piece, which will, be launched in June, June 21. It depends on country words and language, of course, but then we are well connected there as well. And then in other work on loop, Saloop is integrating type 0 into our in into our into our apps about control apps in order to have a controller enabled pump as well as as Metro and Sanjay do. It will help bring people into range and they expect to launch that in 'twenty two, beginning 'twenty three, depends a bit on LDR and whether you have to do a larger or smaller diameter. Well, this is just a reminder here on my last assist, and then, some of you may not know G6. This is the piece of the Texas Center. A great product. It's a continuous glucose monitoring, system, which you put on your arm, you're up done. And it measures continuity, the the Takilco's value, the TENSEN via Bluetooth to the mailer app. You can see the values online on your phone. It gives you a bonus device, and you can then give your photos from the pump. The pump of course is connected as well. And then as a next step, you can imagine you keep your boat directly from the phone, you no longer have to touch the pump. Important to understand here is also the doctor now finally have all data at the land, the PGM CTM data, and the pump insulin data could also port in much better therapy, during the time. We are also wrapping up on the capacity for the cooling set, by installing the 10,000,000 lines in Sberline. It's being delivered right now. We are going to be a life and production in the second half of twenty twenty one at this summer. At the moment, we are in not capacity out of Mexico, but it's clear we have to ramp it up. This program is well underway. It's, enormous and, a line that we installed there, including all necessary, active moving capacity. But it's something we can do. It's a core competence that, you know, manufacturing excellence. So just as a last element, what happens on my life is the Explorer app we have used time, to work on to site in order to introduce train tools in the time when we cannot see patients, when we cannot decline. So we have, launched just a couple of weeks ago and pushed it up into the Android and, iOS, shops in the various languages, our so called the floor mats. The Explore app is, explaining you the pump, how it works. You can, you you can really post through a model. You can take tests. It gives you a clear feeling, I think you can get into contact with our offices in the various companies in order to ask questions, etcetera, to understand how our product works. And to to get acquainted with the therapy, a very, very helpful tool that we have now delivered, in this special time. And in order to do these things, also in the future, and, you know, in in in a very robust and and and and clear way, We have started to build up our regional hub in Barcelona. So next to our software engineers in Bauxhall And Circle Institute, We are now building up in Spain, our, our, and our hubs. We are fifty people now. We're going to be roughly 40 people in 18 months from now. Eventually, there will be more the speed you're adding people here is excellent and then we are very pleased with the quality of the salt engineers in Spain. So zero carbon emissions, our sustainability program, of course, did not just to exchange material in our devices, it's also, doing our homework on the infrastructure side. So we have, for instance, affordable dialect of all the buildings, we have kicked out gas, heatings, and reuse our own heat that we generate from our plastic molding machines, our pressure lines. We have also now added MS Silos, and a new interesting concept that supports us in bringing plastic granules into the factory without using the space of the factory and without generating waste. Of the pallets and cotton plastic. So we have trucks coming here a couple of times per week, filling up these huge silos that bring the plastic into the factory directly onto the plastic molding machines without a lot of handling. It's a much, much leaner and in a remotely much more friendly process. With that, I would like to come, to the last two slides. I would like to, just reflect a bit on a lasting effect of COVID-nineteen. It's a necessary solution. That's our claim and a COVID pandemic clearly shows that we are here in the center of, this, this need. People want to treat themselves at home We are not allowed to leave our home. So home care becomes an essential part of life, and, it's met has been there since its inception. So home care and health care has become more and more relevant, even during that time, I feel convinced that it will it will stay like that. We are more open now to do the therapy in our four walls. Digitization, of course, with our decision a couple of years ago to make our lives in digital, we have done what is required now because doctors can be in contact with the patients easily by having access to the pump patient data, the the the the data from from from the injections and This is why we are continuing and are convinced that we have to continue to invest in digitization, yeah, even so after the crisis. And affordability. Something that I've just been talking about for many years. Now we see the world. It's, it's it's it's getting a hit. And there will be less money around in the health care environment in the future. So it has to do our homework. This is why our lean program our lean manufacturing, our gating effect, pay off, and we want to deliver a disconnect, an affordable product, that can be used by patients with clinical diseases all over low, not just in the Western world. And the supply chain, the delivery products to our existing base enabled supply chain has done our central warehouse in Europe If you have SAP based companies of all systems are in place, there's no further work there. This is really derisked for our for our clients, and during the whole crisis that has not been one single interruptions of the supply chain. This is something we've asked very, very well. And what we have also seen during the time that partners are willing and able and feel together with them willing and be able to make pragmatic and innovate, innovate these deals. Having a Dex partnership and also partnerships that they're going to announce Sue in America is mainly done without seeing each other face to face, all done via zoom and Webex, and it just shows that, probably if there are parts that want to make it happen, it it it can happen. And we get closer by a digital means also in the state of collaboration. So Ipsenet makes health care simpler. This is Ipsenet It is what we do. It's eight pieces, it's 10 milligram, infusion systems, and safety management. It's our It's our core in the managed diabetes care world, our B2C business, and then, of course, our pen, open check, the patch and check brands, and data business where we are the market leader in systems and devices for pharma and biotech clients. With that, ladies and gentlemen, and thank you very much for listening. I would like to hand over to Thomas to start the Q And A. Thank you. Dear ladies and gentlemen, we will now start for star 14, I repeat star 14. Press star 15. I repeat star 15. There are several questions coming up. I will open the lines 1 by 1. At your turn, you will hear the announcement unmuted on your line. I kindly ask you to introduce yourself with your and your with your and your company's name. Thank you very much. The first person is already unmuted. Carlos Marino. Carlos Marino, you are unmuted for the question. Very well. We will go to the next question. Good afternoon. I expect it to me now, in the line. If you can reach us back at home, I have, two more questions after the last conference call. The first is about if the pot pops, he decided to, gave to Tex Mex and that you mentioned that you, will achieve a topic of around 4,000,000, just to understand what you spoke in the first half, booked in the second half and rarely booked. This is my first question. Yes. Thank you, Sidil. Yes, it it supported, and I'm going to wrap in the second half. So we are going to, a time that they the sale of the program, in January. So it will be 100% in the second half. And it will be booked under financial financial income. So it's not in the EBT below. Is that correct for me? Okay. It's become We booked the gift of post, profits in the debit or in the financial financial income. Indeed. Oh, that's in debit. Alright. So if I see you, we're going to give it over, in income. Under other operating income, when we talk about, slight increase in operating income, in operating and EBIT in our guidance, then we mean business out, this selling its support. This is additional to our regular guidance. Okay. That's helpful. And the option is about the the pen noodles. Is it, I understand. So that that the sales were decreasing, quite heavily. What's the ad is still positive? Yes. It has been, and it is increased by debit. It's roughly $100,000,000. So it's about one fifth of all pennies. That we are selling less, in the US. Now, the US financials, as you can imagine, have not seen with the highest margin. So from that perspective, the effect is not so big, but of course, because we sell less needle, we have less, let's let's adding to the, to, to, to our fixed costs. So overall, I think it has been negative simply because, it's the overall, that is care infrastructure with sales organization that will cost and be, we we we we we assign cost from from the countries to all the different four business areas in in in the United States area in that state has been negative. But it's a matter of time and, and they'll be positive again. At the same, we will keep the substitutes. It will substitute the these reduction of sales very soon. Yes, it's a personal item. Okay. Thank you very much. And the last question just, when I calculate, are you sickers with my divisions and units. So I understand that the the it's dotcom. It's attractive to him that sales were higher than the negative edit, the the balloon test. Meaning, if you had saved, let's say, 10,000,000 the address more and more lower than 9, 10,000,000 tons of tires. I pick a number. I didn't quite get the question. I tried to, try to, yeah, there was no career, maybe you can pretty go on mute and I, on your phone, I tried to, I repeat the question. All you're saying is, you do have asking whether that EBIT, on the pump has been bigger than the total revenue of the pump. Right. From sharing. Yeah. I don't believe it's closed, please. That's fine. It's just a follow-up, and I try to ask this question. A bit low for our gift card because we have depreciation already there in now for, production sites in trading. And last year, we had, it's, from the beginning of 1st September. Now on, We have all the infrastructure, all the clean room, all the machines are already there. And, we have about what what is the, I would mean, about 2,800,000 to 3,000,000 decrease in additional depreciation. Which is allocated to each month at the moment. And that's why we have, a year for in Japan. Yes, I would say that the smallest difference between TTI and previous year. So this is mainly This is mainly this additional cost for infrastructure units. Very well. At this point, we do not have any further questions. Okay. So excellent Oh, sorry. We just received another question, if that is okay. Please. Please. Please. Be free. Very well. Oh, hi. It's Carl from your writing. I'm sorry, made a sister, a mute button. I just wanted to ask on the on the pod again. I mean, what's the reason to kind of, move that into kind of private development? Was that purely to kind of save the the p and l, you know, is it is it kind of a purely financial move, or or can it be developed faster, better, in in the kind of private hands? Thank you. Carlos, thank you for the question. It's it's it's it's definitely mainly financial opportunities and internet, but in in in a world of spin out, you can imagine, and it is also my expectations that the team is going to work more independent. I mean, they are all basically staying in our offices. It's all the same people and certified people working on the program, And then, but they have, they are probably a little bit less, disturbed by corporate staff. So my expectation is that our program later there, it's going to use this freedom, you know, to be quicker and more brave in decisions. Okay. We have no further questions at this time. Thank you, Olivia. So for sure, please, for our participants, please do not hesitate to contact us any time for additional information, we are here to support you. We really, try to to to to be transparent, and we are open to all your questions. And so thank you for joining us today. We look forward to our next call very soon. And stay healthy. Operator, please call. Please close the line.